Telecoms reforms could revitalise Papua New Guinea's cellular market

Analysis

In early 2016 a number of initiatives and transactions were in the works that promise to bring balance to a market that has so far been dominated by a single player. The plan is simple but bold: consolidation of the government’s companies operating in the retail space, and consolidation of its assets on the wholesale and infrastructure side of the business.

If successful, these restructurings would make the market more competitive, both in the underlying bandwidth costs and at the consumer level. Some elements of the transformation now under way plan have been attempted in the past without success. However, if the country is able to put its vision in place, the sector could look very different, and healthier, in the not-so-distant future.

The Core Investment

Central to the programme is the development of state-owned Telikom. Over a three year period, the company has been bulking up in ancillary lines, shifting its focus and making massive investments. In 2014 it purchased Datec, a major internet service provider (ISP) in the market since 1985, and in 2016 it acquired local TV channel EMTV.

The company is also making a $400m investment in its business. Funds are going toward an improvement in the company’s billing and IT systems as well as staff training. Most importantly, the state enterprise is rolling out a 4G system nationwide. The network will have 256 base stations by the end of 2016. In mid-2015 Telikom CEO Michael Donnelly predicted that within two years all Papua New Guineans would have access to modern communications, up from the current estimate of 85-90%.

The expansion has been undertaken by Huawei with funding coming from the China Exim Bank. Telikom has been expanding aggressively to utilise its much improved network and its newly acquired assets. In September 2015 its Datec subsidiary opened a store in Goroka. This new presence will enable the company to offer its services as the communications infrastructure begins to reach more remote parts of the country. The company has also expanded in Mount Hagan, where it opened a branch in early 2016, and plans to expand to Madang as well.

Going Mobile

An essential part of the country’s strategy is a dramatic change for Bmobile. The government has tried in the past to revitalise the company, but without much success. PNG partially privatised Bmobile – taking the state’s stake down to 50% – and then invested heavily in the carrier, taking its ownership back up to 85% in 2013 and rotated a number of CEOs through the top spot with different visions. However, Bmobile was unable to gain the trust of the public and increase its market share against a powerful and well run Digicel.

In 2014 the government sought to sell a stake in the company to a major foreign investor’s fund, Fiji National Provident, and to bring in a global leader to run to the enterprise: Vodafone. However, the transaction was never completed. Following the failure of the deal, a compromise structure was agreed upon in order to bring in foreign management without giving up equity. In the deal, Bmobile and Vodafone entered a non-equity partnership in PNG and the Solomon Islands. The company has benefited under this new arrangement. It has received training and support from its international partner, while it has been investing heavily in its business in order to compete better with its chief rival Digicel. The company has been expanding rapidly in Port Moresby, Lae, Mount Hagen, Goroka, Kainantu, Manus, Buka and Alotau, according to the local press, and opened a flagship store at the Vision City Mall in early 2016. Bmobile claims to have the fastest-growing network in the country, and is positioning itself as the company offering the best value-for-money proposition in PNG.

Bmobile Back

The crucial step is to bring the pieces together and to consolidate all the relevant holdings under one roof. With the China Exim Bank loan, Telikom is able to make the infrastructure investment that Bmobile needs, so the current thinking, according to industry sources, is to take control of Bmobile, bring it into Telikom, combine it with Citifon and allow the mobile operations to utilise the new Huawei-built network. The end result would be a powerful, single entity with good high-speed coverage and a solid market position.

Executives in the sector believe that a revitalised Bmobile integrated within Telikom would be an unbeatable competitor. While the technology and investment are important, they note that the attitude of the market is also an essential driver.

The people of PNG have mixed feelings towards the dominant player, appreciating the service that Digicel has brought to the country, but believing that the company may have been taking advantage of its position in the market. They are seen as being inclined towards a locally owned company if the service is good. The combination of Telikom and Bmobile might be enough to tip the scale. “Everyone wants to move from Digicel,” Bhanu Sud, CEO of EMTV, told OBG. “If there is another option, Digicel will be crushed.”

The problem is that for the deal to work, the shareholders of Bmobile have to be bought out. Despite the government having increased its shareholding to 85%, a number of owners still remain. This group includes the Asian Development Bank, the PNG Sustainable Development Program, Steamships, Nasfund, Nambawan Super and GEMS, a Hong Kong-based company. While the superannuation funds should be easy to convince, the private investors might be challenging. Significantly, Telikom cannot use any of the China Exim money for Bmobile, as those funds are tied to the purchase of Chinese-made equipment.

DataCo

While Telikom pulls together the front-line assets, the government is working to take the country’s basic telecoms infrastructure and restructure it to work in a coordinated and equitable fashion. To accomplish this, the country has created PNG DataCo. The company is designed to operate a national broadband network (NBN) and to sell the capacity on a wholesale non-discriminatory basis to all players in the market. The hope is that this structure will be better than the vertical structure of Telikom, in which the state company was both running essential infrastructure and selling services.

The targeted infrastructure includes assets both within the country and assets connecting PNG to other countries, such as cables, satellite gateways and microwave links. The PNG LNG fibre-optic cable, Telikom’s backhaul assets and PNG Power’s fibre-optic connections are on the list. By early 2016 Dataco had already acquired 41.7% of the PNG LNG cable and cables from PNG Power, and it had built fibre-optic cables from Port Moresby to Caution Bay, from Mendi to Mount Hagen and from Mount Hagen to Wabag.

International Cables

A priority for the company will be international connectivity. APNG-2, which runs from Port Moresby to Sydney, is ageing and running at about 80% capacity, while PPC-1, which runs from Madang to Guam, is underutilised. A number of options are being considered to improve the country’s links to the outside world. One is to build a new cable to Sydney, the other is to improve connectivity between Port Moresby and Madang and route more traffic northward. The ICN-2 cable, which runs from PNG to the Solomon Islands and then to Vanuatu, is set for completion by the end of 2016. It will connect to the already completed ICN-1, which runs from Vanuatu to Fiji and links to the Southern Cross cable running from New Zealand to Hawaii.

DataCo’s ultimate vision for PNG is to create a national network that reaches all parts of the country and offers significant domestic capacity as well as better international connectivity, plus reducing redundancy all around. Lae and Port Moresby will be better connected, through the Hides link and via a proposed domestic submarine cable, while the country will be connected internationally via a number of cables: ICN-2, the PPC-1 overland through Madang, and the domestic cable linking to PPC-1. The domestic cable would also link Wewak with Madang and Lae, down to Popondetta and Alatou and on to Port Moresby, while also bringing Kimbe, Kokopo, Kavieng and Lorengau onto the network.

While the vision is a sound one, and would help bring more of the country online and stabilise the international connections, it remains to be seen how much of what has been planned can be accomplished and how quickly. PNG is a challenging environment, and the installation of a cable can take time and is often delayed. It is also not clear how quickly DataCo will manage to come together.

Questions were raised by some observers in February 2016 about the transfer of assets from Telikom to DataCo, including PPC-1, APNG-2, the Gerehu Satellite Earth Station and the Tiare Internet Gateway. As of mid-2016 the DataCo website continued to show that the planned transfer was still pending.

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